January 17, 2008

Host: Ted Simons

West Valley State-of-the-State

Governor Janet Napolitano gave a speech today to West Valley leaders on the state-of-the-state from a West Valley perspective. Jack Lunsford, President and CEO of WESTMARC, an organization that promotes the West Valley, talks about the Governor's speech.

Ted Simons:
Tonight on "Horizon," is the economy in a recession? One economist says we're actually coming out of one. A ruling on the employer sanctions law is held up until next month, but the law won't be enforced until March 1st. And the governor gives a special State of the State address for the West Valley today. Find out what she talked about next on "Horizon."

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Ted Simons:
Hello and welcome to "Horizon." I'm Ted Simons. Federal Reserve Chairman Ben Bernanke talked about a $150 billion stimulus package to help jump-start the economy today. In the state, jobless rates will jump from 4.1\% to 4.7\% last month. Those are just two signs that the economy is in trouble. But are we in a recession? Here to talk about that is Grand Canyon University economist Debra Robik. Debra, good to see you again. Thanks for joining us.

Debra Robik:
Glad to be here.

Ted Simons:
Before we get to whether or not we're in a recession and your ideas that we may be coming out of one, what is a recession?

Debra Robik:
Ok. Technically a recession is two quarters of negative real GDP growth. And it's actually decided by a group called the National Bureau of Economic Research. So it's NBER. They're the ones that actually decide. And they take real GDP growth, look at it over time, and also they try to verify a negative growth pattern with four things: employment, personal income, industrial production, and leading indicators. And those indicators are all produced by different groups around the country. So they take all this information and they try to determine if we've technically been in a recession.

Ted Simons:
And the general feeling is either we are in one now or we're headed for one, but you say, "Oh, no."

Debra Robik:
Right. I want to use two market axioms I love to use. The first one is, if everyone's jumping on the bandwagon, you're too late. So I think that -- you know -- everyone's jumping on the band- wagon now saying that we're in a recession. And when you look at the data, we've been weak for a year. The real estate market was horrible. Industrial production has been through the seesaw pattern, up and down. We've had positive month and negative month, positive month and negative month. Actually, for December when we were expecting another negative month in industrial production, it was flat. So we didn't get that seesaw pattern. If you look at retail sales, which was negative in December and everyone's using that as an, "Oh, it's an indicator that consumers are going to stop spending" -- if you take the two months. Because my other axiom is one month does not a trend make. We've had one month of negative retail sales. If you look at November and December together, we had a positive growth in retail sales over the holiday season. So I think it's too late. [Chuckling] I think we've had a recession in certain markets but, overall, our GDP growth has been fairly healthy.

Ted Simons:
Well, and that's a fairly optimistic way of looking at things for sure, considering what the general consensus is. I'm also hearing a word -- not much, but it's a word we haven't heard in a long time, stagflation. What is that and how possible is it that we're heading for that?

Debra Robik:
I'll give you the textbook definition first and then I'll give you mine second. The textbook definition is that you have an increase in inflation at the same time you get a reduction in production. So, in other words, it's like with the economy just cannot producing enough and prices go skyrocketing. What happened -- and the last time we really used it was in the 1970s. And what happened back during that period, you had the Federal Reserve Board pumping in money. You had a lot of gas shortages. You had a lot of things pushing up prices, and you had the economy losing capacity to produce because of tax policy. Our tax policy was so prohibitive, no one wanted to produce more, because it actually made you -- pushed you into a higher bracket and it was unprofitable for you to produce. So at the same time all this money was being pumped in, there were less goods to actually buy. What does that do? That forces the price up for goods and services.

Ted Simons:
Ben Bernanke talking about an economic stimulus package, Congress kicking things around like a $300 or $600 rebate check for taxpayers, those sorts of things. Is that necessary?

Debra Robik:
You know, this is a tough question for me, because while I think the economy is overall healthy, there are pockets, and I think the one factor that I haven't done a lot of research on is the average Joe walking on Main Street who bought a house and tied themselves into an adjustable rate mortgage, and they were a little bit under qualified to take on that mortgage and what effect that will have on -- you know -- the average- and lower-income groups I haven't done a lot of research. So it's hard for me to give an opinion on that one, because I'm not sure. It might help a group that is going to face a lot of hard times ahead.

Ted Simons:
And so many hard times right now apparently for a lot of folks here in town regarding the housing industry. Without getting too specific here, we see opinion after opinion it just keeps stretching further out as to when the recovery might happen. Your general views on that. And again with the idea that, if we are coming out of a recession, is the housing slump something that will keep that from happening?

Debra Robik:
I'm going to toot my own horn for a little while because I remember five years ago saying at a committee meeting saying, "We've got 30\% of our jobs tied to real estate in one way or another. Let's watch the market." Because if the market takes a dive, our state revenues will take a dive, and we really need to watch those indicators and remind ourselves in the backs of our minds that, when we start to see things weaken, revenues are going to weaken and you just have to expect that because of the way Arizona, our economy, was being built up, becoming so dependent on real estate at that point. We just ignored history, and obviously we're really taking a tumble because of that. And I -- when I was here last, I explained that the one good thing that we've got going this time is we have a lot of projects that are just keeping us buoyed in terms of the stadium, light rail, the civic center, everything that was going on. You could take those workers that weren't working in the home building industry and transfer them to other projects. Those projects are coming to an end, and we are going to feel something. So it will have an impact.

Ted Simons:
And the growth that seems to cure so many wounds, again if the country is playing touch and go with a recession, that means, I would imagine, fewer folks would be willing to move out here and continue the same rate of growth. Does that make sense?

Debra Robik:
Yeah. It depends on what we do with our policies that make it profitable for business to do business here. If we continue to attract businesses and new jobs, people follow jobs. So the key is keeping our economic atmosphere conducive to business, and that is really the key. And I think the governor -- she's done a wonderful job of that. She's been really good at balancing -- you know -- the business interests with the interests for the individual.

Ted Simons:
So we have a budget shortfall. We've got some problems down there at the capitol with that. We've got a housing slump that some people are saying may not get better till next year. Some people are pushing this thing out three to five years as far as getting back to the peak in '06. But you're saying, "Maybe we're getting out after recession", so are you optimistic here for the next six months or so?

Debra Robik:
Next -- I still see -- even though I say we're coming out of a recession, it's -- I define a recession a little bit different from everyone else, because I look at the rate of change of the rate of change. So in other words, if you're going from 4.9\% in real GDP growth and you're dropping to 3.9 and then to 2.9, and then all of a sudden you're going back up to 3.2, that's the trough. And that's what I'm talking about. We're at that trough right now where hopefully we're going to start picking up again. Because we've had residential spending dropping for seven quarters, and we still have had positive real GDP growth. Every other sector in the economy has been picking up the slack, and I think that's going to continue.

Ted Simons:
Thank you very much.

Ted Simons:
An agreement reached on the employer-sanctions law. The agreement that the law would not be enforced until March. Federal Judge Neil Wake also said to expect a decision by next month on the case against the law. I'll talk to a reporter who was at the hearing for an update but first, David Majure reports on arguments being made against the employer sanctions law.

David Majure:
Illegal immigrants have long been a part of Arizona's workforce, but a new state law seeks to end the practice of hiring illegal workers by penalizing employers who do so. House Bill 2779, signed by the governor in July, punishes employers who knowingly hire unauthorized workers. Their business licenses can be suspended for a first offense and revoked for a second violation. And under the new law that goes into effect January 1st, employers must verify the legal status of all new hires using the federal government's e-verify system. But a lawsuit has been filed in U.S. district court to stop the law from taking effect. Led by the Arizona Contractors' Association, about a dozen business groups are behind the lawsuit. The names Arizona, county attorneys, attorney general, and registrar of contractors as defendants. The challenge to Arizona's employer-sanctions law is based on several claims, among them that the law is unconstitutional because it interferes with and is preempted by federal immigration law. There is a claim that it violates an employer's right to due process guaranteed by the Arizona and U.S. constitutions. Another claim says it illegally regulates interstate commerce because it affects workers who may be hired and work in states other than Arizona. The lawsuit also argues that the separation of powers doctrine of Arizona's constitution is violated because the Executive Branch has little, if any, discretion in enforcing the law. And it claims that there is a violation of the U.S. Constitution's fourth amendment protection against unreasonable search and seizure. This has to do with requiring employers to use the e-verify system to check the status of workers. By doing so, they must allow periodic site inspections by government workers.

Ted Simons:
Here to give us an update on the employer sanctions case is Mark Brodie, a reporter for KJZZ radio. Mark covered the court hearing. Good to see you Mark. Thanks for joining us.

Mark Brodie:
My pleasure Ted. Thanks.

Ted Simons:
This agreement now, no prosecution I guess until March 1st. How did this agreement come about?

Mark Brodie:
Basically towards the end of the hearing, Judge Wake asked the county attorneys who are in charge of prosecuting these employer sanctions violations cases as well as the state solicitor-general when do you think reasonably you could come up with cases? Basically when do we need to know what's going to happen with this law? When can you reasonably think you're going to bring cases up against businesses? The attorneys conferred with some of the other people in the courtroom and basically decided that, in all likelihood, it wouldn't be before March 1st. Now, that's a month later than they originally said. They originally said February 1st. there's one caveat with this, as there was with the February 1st deadline, and that is that, if there is a case that comes up that a county attorney is ready to go forward with, that county attorney will just notify the court and notify the plaintiffs so that the plaintiffs have time to request a temporary injunction and a court theoretically could grant that so they wouldn't then go ahead with the proceeding without the plaintiffs really knowing what's going on.

Ted Simons:
And, again, prosecutions would start March 1st. However, if something occurred today, that does not keep that incident immune from prosecution.

Mark Brodie:
Exactly right. Part of the issue is that this is a brand-new law. There has been some debate about how do we go about enforcing this from the county attorneys. There's really no template how to do this. So really it's about getting the staff up and running, getting the research up to do these. Most of the rural counties say that this is not a big issue for them. They haven't really had complaints. I think Pima and Pinal counties each had one complaint. I don't think there have been any in Coconino, yet. Maricopa County of course a different situation. For basically everybody other than Maricopa County, this isn't really much of an issue yet.

Ted Simons:
It seems like there are two big sticking points. First of all, what does the word "employ" mean and secondly the idea of due process of the lack thereof. Touch on both points if you could.

Mark Brodie:
The law says that you're not supposed to employ anybody who's not in the country illegally -- who's in the country illegally rather, obviously paraphrasing the statute language. Does that mean then that anybody who is on a payroll as of January 1st is applicable to this law or any new hires after January 1st would apply to this law? The problem here is that businesses are not allowed to run existing employees through e-verify, the federal database program. They can only run new hires through. So, if you have a business and you have somebody on your payroll who's in the country illegally who's been working for you since before January 1st, you might not know that, but you could theoretically still then get punished for that even though you couldn't run them through e-verify. E-verify always considered what's known as a rebutable offense in this law. If you run your employees through e-verify and it came back ok, that is essentially saying to the judge, "We did what we could. We should be ok."

Ted Simons:
What about someone who transfers out of state to Arizona? That opens up a whole other can of worms, doesn't it?

Mark Brodie:
It does. And that's something else that the plaintiffs brought up that if you have a multi-state company, somebody comes in from out of state to Arizona, they are an existing employee, new to Arizona. Is that business then liable for that employee if it turns out that they are not here legally?

Ted Simons:
Due process, another big factor in this.

Mark Brodie:
Yeah. The plaintiffs are concerned that they don't have due process under this law. The business puts in a name and a social security number into this e-verify, checks against federal databases from department of homeland security, social security, all that sort of thing. It comes back -- if it comes back that the worker is not here legally, it's just what's called a nonconfirmation. The employer then really has no basis to challenge that. There's nothing they can do about it. It's entirely up to the employee to go to the social security administration, to go to DHS, wherever they have to go and get that cleared up if they are here in fact legally. So the businesses are saying, well, we might want to hire this person or we have hired this person. We ran them through e-verify. What are we supposed to do? We can't challenge this. They are here legally. We can't do anything about it. The program came back and said they can't work.

Ted Simons:
Interesting. Now, when the judge here -- obviously you're there. You're seeing this. You can kind of get an indication of how a judge is feeling about certain things in a variety of ways. What does he seem to be struggling the most with?

Mark Brodie:
It seems to be that he is struggling with the hire versus employ debate. Although he was asking pretty tough questions of everybody, all the attorneys for the plaintiff, the solicitor-general gave most of the testimony on behalf of the county attorneys and the other defendants. But he was asking pretty tough, pretty probing questions of pretty much everybody. Far be it from me to try to predict what he thinks of the main sticking points or how he's leaning either way.

Ted Simons:
And he says now he will to get some kind of -- he will try to get some kind of decision by early February, mid February?

Mark Brodie:
He said, if I can, he wants to get this done by the end of the month. The stack of papers of briefs in this case was about yea high. He admitted that he's got a lot of work to do to get this done. He did say, if he can't do it by the end of January, which he's going to try really hard to do, it will be by the end of that first week in February. that means that whoever loses can then appeal quickly and have approximately three weeks to hear the appeal and have it go through the legal process before March 1st, before those prosecutions might start coming up.

Ted Simons:
I'm sure he'll be the happiest of everyone once he makes that decision.

Mark Brodie:
He'll be pretty happy.

Ted Simons:
The governor gave her State of the State Address Monday. She did a repeat performance of sorts today, giving a state of the state address from a west valley perspective. I'll talk to a West Valley leader about her speech today and about the West Valley in general, but first here's an excerpt from Monday's speech. The governor talked about an issue near and dear to west valley leaders: transportation.

Janet Napolitano:
This plan must include not just necessary freeway construction but also transit options, including a robust rail element, because we simply cannot out freeway the problem. Imagine expanded freeways, more local transit, plus a Tucson to Phoenix rail line, and you'll see how we need to ride our transportation factor.

[Cheering]

Janet Napolitano:
The Arizona transportation plan of the future envisions a state of 10 to 12 million people and a transportation infrastructure second to none. It will not be cheap, but we are already lagging. And to continue to wait, to play catch-up as opposed to planning ahead, will only make the whole thing cost more. By this spring, the critical studies will be near enough to completion for you to act. I ask that you schedule hearings and prepare to refer to the ballot either in 2008 or 2009, an Arizona transportation plan that provides the infrastructure we need for the decades to come.

Ted Simons:
With me now to talk about the governor's speech to West Valley leaders is Jack Lunsford, President and CEO of WESTMARC, an organization founded to promote the West Valley. Jack, good to see you.

Jack Lunsford:
Always a pleasure to be here.

Ted Simons:
The speech on Monday and the speech today, was there much difference?

Jack Lunsford:
I think what the governor did today is she really drove towards the importance of the west valley and the impacts of what her plans and proposals are to the West Valley and, in particular, transportation.

Ted Simons:
Talk about transportation a little bit here, because anyone who's been to the West Valley, I mean, if you go one week and go back the next, it almost seems like things have changed appreciably. Transportation is going to be -- you can't help but seeing that as being a problem literally down the road. What needs to be done?

Jack Lunsford:
Well, it's WESTMARC's number one issue and has been for the last two or three years. If we take a look at just the area west of the 303 -- remember only Proposition 400 funded up to the 303. We're going to build the 303 but everything to the west -- the Hacienda Valley I-10 corridor study predicts somewhere between 1 and 3 million people from the 303 to 459th avenue and from the Gila river to state route 74, so the West Valley is engaged with other -- 30 other business groups across the state called the time coalition to help the governor identify a statewide transportation plan that we can take to the voters. And we are instrumental in that.

Ted Simons:
Are people getting the message, not only state leaders, lawmakers and such, but just the Average Joe and Jane? Do they understand what kind of growth is coming to the west valley?

Jack Lunsford:
I'm not sure they think about it on a daily basis. They think about it certainly when they're on the I-10 coming eastbound in the morning or going westbound in the afternoon but not yet. The 303 is extremely congested, and we -- and it's dangerous because of the number of accidents. So we know and Time Coalition has done a survey. Voters recognize the need to find a way to fund an expansion of our transportation system. And so they know about it from that standpoint. But I don't think they think about it on a daily basis until they're in traffic.

Ted Simons:
Everything we're talking about is predicated on growth. We've talked a lot on this program about housing slumps, housing downturns especially in new construction and these sorts of things. How does that dynamic play into it?

Jack Lunsford:
I talked with some folks just today, and that's almost on a builder by builder basis in the West Valley where some of them, depending on how they put together the business plan and whether they had a lot of inventory, whether they did a lot more specs than others, those are the ones having difficulty. Buckeye has already increased in population, which tells us that they're filling housing units. Buckeye has more than 300,000 approved units right now. And so we know the growth is coming, and we're seeing a little bit after slump. We're seeing a little bit after reduction in values. But I don't think we see anything that correlates to what we're seeing on a national scene.

Ted Simons:
We talked earlier in the program about the problems of being dependent too much on the housing industry. Diversification going on out there?

Jack Lunsford:
I think we're starting to. The West Valley in some respects is where the West Valley was 20 years ago. Our diversification is going to be a little bit different. We've got focus on being an entertainment venue and a sports venue, and yet, in some of these planned unit developments, we clearly have talked about the need to have corporate employment centers. If we don't have the corporate employment centers, then we're going to exacerbate the transportation problem and we're not going to have places for people to live, work, and play within their communities.

Ted Simons:
I can't let you go without asking about the Super Bowl. We know it's going to be -- a lot of folks are coming out. They spend their money and go nuts and then they're going to go home. What happens to the West Valley after the circus leaves?

Jack Lunsford:
We will be just fine. For a variety of reasons. We got, just in the area of sports and entertainment, we've got spring training. We've still got everything going on in and around both the Cardinals Stadium, University of Phoenix Stadium, as well as Jobing.com. We've got Westgate. Rightpath is putting together a huge entertainment complex near the Glendale/Phoenix spring training site. But PIR, the NASCAR races generate the equivalent amount of economic impact for those two races that the Super Bowl does. So where other venues around the country might feel that vacuum, I don't think we're going to feel it that way.

Ted Simons:
As far as spring training is concerned, what are we looking forward to here? We've got the Dodgers coming along with the White sox from Tucson?

Jack Lunsford:
White Sox and Cleveland, and there's another team the town of Goodyear is looking at very closely. I've heard rumblings, but I don't know if that's official yet.

Ted Simons:
We've got 30 seconds. The demographics of the West Valley, how do they differ?

Jack Lunsford:
I think the demographic is reflective of the entire Valley. I mean, what we see both -- both from in terms of age, ethnicity, yeah, we have our pockets of aging Americans, but we have those elsewhere in the valley, too. We're really reflective. We mirror the rest of the Valley.

Ted Simons:
Nothing too different out there on the west side, huh?

Jack Lunsford:
Not at all. We're just excited to see everything happening in a really positive way.

Ted Simons:
Thanks so much for joining us.

Jack Lunsford:
Appreciate it.

Announcer:
It's back to work for lawmakers with the State of the State Address over. We'll look at the first week of the Arizona legislative session and what issues they tackled. Also, for the third time, the employer sanctions law is challenged in federal court. The "Journalists' Roundtable", Friday at 7:00 on "Horizon."

Ted Simons:
That's it for now. Thanks so much for joining us. I'm Ted Simons. You have a great evening.

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